Understanding

the differences between

Business entities require funds to execute large-scale production, manage operational costs, and expand or diversify the business.

To raise capital, businesses invite members of the general public (investors) to claim a small stake as business owners via equity participation. This offer could be made multiple times to investors during the life-cycle of a business.

Have a glance at the implications and differences between these public offerings IPOs and FPOs.

A privately-owned business or unlisted company offers their shares for sale in an IPO, which is subsequently listed on a securities exchange.

Any second or third invitation of subscription via a document called a ‘prospectus’ from this listed public company is an FPO.

IPOs are a comparatively riskier proposition than FPOs.

As a listed company on the securities exchange, it is mandatory for the business to disclose the list of promoters, key management personnel, assets, balance sheet details, budgets, and projections.

As a private entity, the promoters, the actual operations of the business, and balance sheet status are relatively unknown; any investment is made in good faith based on the promoter’s future projections of growth.

The faith of the current set of investors is visible through its performance on the stock exchange.

If you have a decent risk appetite and a keen eye for business foresight, an IPO is a good investment option.

Riding on the bus early can yield handsome dividend returns and capital appreciation in the long run.

If you are on the fence, or have only recently picked up cues on the business, it’s best to wait and watch; you will be better informed when you do consider investing.

Additionally, stock prices may get diluted in a subsequent issue, which means the stock ownership comes cheaper.

Disclaimer: This infographic is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.